Let’s close a tax loophole so big you could drive a bus through it

With the February introduction of the next Liberal budget fast approaching, I am calling upon the Liberal government to plug a loophole that lets corporations and wealthy individuals avoid paying BC’sproperty transfer tax. Plugging this loophole would bring tens of millions of dollars into provincial coffers and correct an injustice that unduly penalizes ordinary BC families.

At present, anyone other than a first-time buyer who buys a house must pay property transfer tax upon transfer of title at the Land Title Office. The tax owed is calculated as 1% of the first $200,000 and 2% of the remaining fair market value of the property (usually the sale price). So if, for example, you buy a $500,000 house, you will be required to pay $8,000 in property transfer tax.

But there is a glaring loophole that is being exploited more and more frequently by wealthy individuals and corporations. That loophole involves having the property held in what is known as a “bare trust”.

A bare trust is a legal entity that allows for the separation of beneficial and legal ownership. The beneficial owner of a property is the person or persons who make all the decisions concerning such things as rent, repairs, management, sale etc.; they are also the person or persons who receive all the revenue from and arrange financing for the property. The trustee of the bare trust has no substantive decision-making capacity as they simply act upon the instructions of the beneficial owner. Typically the trustee is a corporation that has no other purpose but to act as a trustee for the bare trust and for which the beneficial owner owns all the shares.

Now here’s the loophole. Suppose you own a $10,000,000 home or apartment building that you want to dispose of. If you simply transferred title, like most of us do when we sell a home, the purchaser would have to pay $198,000 in property transfer tax.

But if instead the property is in a bare trust where the trustee is a company, then you will pay no tax. All you have to do is sell your shares in the company for 1$ (the company has no assets anyway), and sell the “beneficial ownership” rights of the property to a third party via a “bare trust agreement” which is not registered at the Land Title Office. Since no change in title occurs, no tax is paid.

Ontario has a similar property transfer tax system in place but they have plugged the loophole. How? It’s straightforward. They apply the property transfer tax upon change in beneficial ownership, not just change in the title registered as the Land Title Office. This could and should be done in British Columbia to ensure everyone is treated fairly.

With tens of millions of dollars of new revenue, British Columbia could start to address many pressing issues.

For example, a program that has been of huge benefit to many families across BC for the past seven years is ending in March 2014. The Family Fund assists families with a dependent young or adult child who has a developmental disability to remain in their family home. Injecting four million dollars a year into this program would keep it going while reducing the overall burden on our social services. Improving access to adolescent mental health services, reducing the effect of rising electricity rates on schools, hospitals and low income British Columbians and dealing with British Columbia’s appalling child poverty and homelessness rates are all issues that would benefit from an injection of new resources.

We have a rare opportunity to correct a tax inequity that privileges both the wealthy and corporations while penalizing regular British Columbia families. It’s the right thing to do. So let’s do it in the 2014 BC budget!

11 Comments

Jan Slakov-

February 1, 2014 at 10:35 pm

Thanks for spotting this loophole and for highlighting the need to continue the Family Fund and the other priorities for spending. The NDP has a campaign to address BC’s scandalously high rate of poverty, which I support as well.

Thanks for all the comments. I am reasonably confident that inheritances (family to family) would not be affected. I am not sure if the heritage property transfer to things like Nature Conservancy would be affected. This would be an important point to address.

Louise Peters-

January 15, 2014 at 7:24 pm

Great points! Except can the transfer from family member to family member be left out? For some inheriting a house and using the equity as the down payment is the only way they will ever own a house. When the transfer is made from family member to family member the tax is not paid.

Michael R. Hewison-

January 15, 2014 at 12:49 pm

Would it be possible to leave charitable organizations out of this? I’m thinking of people struggling to maintain heritage museum properties where the only benefit of transferring ownership is to maintain the property for the benefit of the community. Otherwise I think this is a good idea. q:)

Charles Robichaud-

January 15, 2014 at 12:04 pm

Yes. Absolutely. Not only have I had to choke down that stinking cash grab, but now I find out the rich can just pass the plate? Make everyone pay, or better yet stop this theft.

J. Wallace-

February 1, 2014 at 1:48 pm

Agreed – I actually applaud their ability to escape this blatant theft from home owners. The government does not deserve to take a cut from every pie! I love the green party but it irks me that they seem interested in further stuffing their coffers with our money.

The BC Green Party would like to see the elimination of the Property Transfer tax. However, with the current administration collecting so much revenue from this it is simply not going to happen unless other sources of revenue can be found. So, like Ontario, its better to make it fair than to make it unfair. That’s why its important to close the loophole now and to work towards complete elimination in years ahead.